UK Construction sector forecast for continued growth despite continued headwinds

·       PwC anticipates the UK construction sector will continue to grow in 2025 with real output rising by c.1%, before further acceleration in 2026-27.

·       High interest rates and subdued private sector demand remain headwinds, but the short and medium-term outlook remain positive.

·       The infrastructure services sector is witnessing record investments in power and water.

PwC’s latest Construction and Housebuilding Outlook forecasts the UK construction sector to grow in 2025, with real output predicted to rise by c.1% despite ongoing challenges across housebuilding and commercial segments. The sector continues to face significant headwinds from higher interest rates and subdued private sector demand.

Looking ahead, growth is expected to accelerate in 2026-27. This growth is underpinned by policy support in the form of planning reform, increased housing and energy infrastructure commitments, and ongoing public investment in schools and hospitals.

Infrastructure output is forecast to grow by c.1.3% in 2025 – a slower near-term trajectory than previously expected, due to delays in major transport schemes. Spend continues to grow from historical highs led by investment in energy and water, resulting in expected real-term growth of c. 3-4% in 2026-27.

The infrastructure services sector is witnessing record investments in power and water, presenting commercial opportunities to expand capabilities. Operational and financial discipline remain vital for firms aiming to navigate this buoyant market, ensuring sustained shareholder value through strategic project selection and disciplined capital deployment.

Industrial Construction is forecast to grow by c.2% in 2025, driven by growing factory pipelines linked to defence and advanced manufacturing. Key projects like the Tata battery gigafactory and aerospace and defence investments underpin this segment's strength, signalling sustained momentum for industrial construction.

R&M vs New Build: R&M activities have begun to normalise relative to New Build projects in 2025, after outperforming for several years. While R&M has grown strongly since the pandemic, New Build is projected to stabilise and return to growth from 2025, restoring momentum within new construction over the medium term. Residential is expected to see a slowdown, following three years of real growth, as discretionary spending is subdued despite falling mortgage rates.

Residential Market Outlook remains optimistic despite macroeconomic conditions delaying recovery. Although interest rates are reducing, real output is expected to contract slightly in 2025 before rebounding in 2026-27. Challenges on both demand and supply fronts persist.

Commercial Sector remains polarised, with robust growth in life sciences and data centres offsetting persistent weaknesses in office and retail segments. Commercial new build output is expected to remain flat in 2025 given a continued decline in traditional segments, before strengthening in 2026–27 as conditions improve.

Cara Haffey, Partner and Leader of Industrials & Services, UK at PwC UK, said:

“It’s promising to see the continued growth in the sector considering the challenging headwinds it faces - government support is making a difference to the longer-term outlook for growth.  

“Our report highlights an opportunistic period for the UK construction sector particularly within the infrastructure sector which is forecasted for robust growth. As the industry navigates a dynamic landscape, it is imperative to exercise disciplined project selection and capital deployment. The opportunities within power and water are substantial, with record investments paving the way for expansion and innovation. By maintaining operational discipline and leveraging opportunities in high-growth sectors, companies can effectively set a strong foundation for sustained development in the years to come.”

About the Construction and Housebuilding Outlook

The Construction and Housebuilding Outlook includes an overview of the sectors’ performance in 2024 and spend outlook from 2025-2027. It provides a quantified view on the UK’s spend outlook and a summary of drivers by segment, as well as insight into topics of interest in 2025 and how to best position for growth in the sector. Our forecast is triangulated across publicly available information, third party reports and our regular touchpoints across the built environment value chain.

Note that all forecast figures remain subject to change and that all information is presented at 2024 constant prices. The next iteration of our outlook will be published in Q1 2026.

Read the full report.